558 Findings of Fact (b) In the proceedings before the Tax Court, the executors did not complain at any time about the portion of the deficiency that resulted from the action of the Commissioner of Internal Revenue in adjusting upward the value of the stock in the Santos Company from $11,857.50 to $23,715. On the contrary, the executors expressly stated as follows in a brief that was filed with the Tax Court: *** The petitioners do not now question the valuation adjustments and confine their prayer for redetermination to so much of the deficiency as arises by reason of the inclusion in the gross estate of the policies of insurance so transferred. 24. A memorandum opinion, together with findings of fact, on the petition mentioned in finding 23 was entered by the Tax Court on December 13, 1944. The Tax Court held in favor of the executors of the estate of Achille Francis Israel with respect to the error complained of by them. As a result, the deficiency in the Federal estate tax on the estate of Achille Francis Israel was redetermined by the Tax Court to be $949.31, rather than $52,221.61, as previously determined by the Commissioner of Internal Revenue. The deficiency of $949.31, as redetermined by the Tax Court, reflected (among other things) the action of the Commissioner of Internal Revenue in increasing the value of the 510 shares of stock in the Santos Company owned by Achille Francis Israel at the time of his death from $11,857.50, as declared by the executors, to $23,715. 25. (a) As of July 15, 1947, each of the plaintiffs owned 1,530 shares of the issued and then outstanding capital stock of the Santos Company. These 1,530 shares consisted of the 255 shares inherited by each of the plaintiffs on January 18, 1939 from Achille Francis Israel, and of 1,275 shares which each of the plaintiffs received after January 18, 1939 by way of stock dividends on the 255 shares that had been inherited. (b) The shares of stock in the Santos Company owned by the plaintiffs on July 15, 1947 had a par value of 1,000 cruzeiros each.1 1 The cruzeiro had replaced the milreis as a basic unit of Brazilian currency prior to July 15, 1947. Findings of Fact 149 C. Cls. 26. On July 15, 1947, each of the plaintiffs sold the 1,530 shares of stock in the Santos Company then owned by him or her. Each plaintiff received for such shares of stock $129,474.10 in United States money and 2,425,050 Brazilian cruzeiros. 27. The capital stock of the Santos Company which the plaintiffs sold in 1947 was redeemed and retired by the Santos Company. 28. (a) On or about March 15, 1948, each of the plaintiffs filed with the Collector of Internal Revenue at Hartford, Connecticut, a Federal income tax return for the calendar year 1947. There was included in each return, among the taxable income, the amount of $122,569.59 as a long-term capital gain by reason of the sale on July 15, 1947 of the 1,530 shares of the capital stock of the Santos Company mentioned in finding 26. The amount of the long-term capital gain was computed by each plaintiff in the income tax return as follows: Gross sales price.. Gain Gain taken into account___. $258, 948. 20 245, 139. 18 (b) The 1947 Federal income tax return of the plaintiff Achille F. Ford showed an income tax of $71,099.25. On or before March 15, 1948, the plaintiff Ford paid to the Internal Revenue Service a total of $72,849.25 in connection with his income tax liability for 1947. (c) The 1947 Federal income tax return of the plaintiff Jeanne F. Harlow showed an income tax of $69,129.64. On or before March 15, 1948, the plaintiff Harlow paid to the Internal Revenue Service a total of $70,379.64 in connection with her income tax liability for 1947. 29. The 540 shares of the capital stock of the Santos Company which Guy Snyder owned on January 18, 1939 (see finding 5), together with the stock dividends thereon, were sold by him in 1949 to Messrs. Montgomery, Brunssen, and Ritchie, who had been officers and directors of the Santos Company and were employees thereof in 1949, and who then resided in Brazil. 558 Findings of Fact 30. On June 24, 1949, the plaintiff Achille F. Ford filed with the Collector of Internal Revenue at Hartford, Connecticut, a claim asking that $70,735.84 of the amount previously paid as income tax for 1947 be refunded. As grounds for the claim, it was stated in part as follows: ** Prior to July 15, 1947, he [the plaintiff Ford] was the owner of 1530 shares of the capital stock of *** [the Santos Company]. 510 of said shares were acquired by bequest from the taxpayer's father *** The balance of the shares owned by the taxpayer were acquired as non-taxable stock dividends on the original shares inherited. The fair market value of the inherited shares on the date of death of the taxpayer's father was not less than $165,709.20 and, on July 15, 1947, the basis of all of the taxpayer's shares was not less than that amount. On July 15, 1947, the taxpayer sold said 1530 shares of stock for an aggregate consideration of $129,474.10 in U.S. currency and Cr.$2,425.050,000 in Brazilian currency. During the year 1947, the taxpayer received dividends on shares of stock owned by him in various Brazilian corporations in the aggregate amount of Cr.$487.200,000 Brazilian currency. All of the foregoing amounts of Brazilian funds have since their receipt by the taxpayer, been blocked under the laws of Brazil and have remained frozen in accounts maintained by the taxpayer in banks in Brazil. * * For the reasons stated, the Brazilian funds described above had no fair market value in 1947. In his federal income tax return for 1947, the taxpayer erroneously reported, as proceeds from the sale of a capital asset, the amount of $129,474.10, being the blocked Brazilian funds of Cr.$2,425.050,000 received on the sale of his stock, as aforesaid, converted into U.S. funds at the official exchange rate of 18.73 cruzeiros to the dollar; that his basis for the aforesaid shares amounted to only $13,809.02, instead of $165,709.20 as set forth above; and that he had received dividends in the amount of $26,011.73, being the dividends in the amount of Cr.$487.200,000 received in blocked Brazilian funds, as aforesaid, converted at the official rate. By reason of the erroneous inclusion of the foregoing amounts of Brazilian funds, converted at the official rate, in his gross income, and the erroneous statement Findings of Fact 149 C. Cls. of his basis for the shares sold as aforesaid, the taxpayer overpaid income tax for 1947 in the amount of $70,735.84, refund of which, with interest, is hereby requested. 31. On June 24, 1949, the plaintiff Jeanne F. Harlow filed with the Collector of Internal Revenue at Hartford, Connecticut, a claim asking that $69,129.64 of the amount previously paid as income tax for 1947 be refunded. As grounds for the claim, it was stated in part as follows: *** Prior to July 15, 1947, she [the plaintiff Harlow] was the owner of 1530 shares of the capital stock of *** [the Santos Company]. 510 of said shares were acquired by bequest from the taxpayer's father ***. The balance of the shares owned by the taxpayer were acquired as non-taxable stock dividends on the original shares inherited. The fair market value of the inherited shares on the date of death of the taxpayer's father was not less than $165,709.20 and, on July 15, 1947, the basis of all of the taxpayer's shares was not less than that amount. On July 15, 1947, the taxpayer sold said 1530 shares of stock for an aggregate consideration of $129,474.10 in U.S. currency and Cr. $2,425.050,000 in Brazilian currency. During the year 1947, the taxpayer received dividends on shares of stock owned by her in various Brazilian corporations in the aggregate amount of Cr. $487.920,000 Brazilian currency: All of the foregoing amounts of Brazilian funds have, since their receipt by the taxpayer, been blocked under the laws of Brazil and have remained frozen in accounts maintained by the taxpayer in banks in Brazil. * * * * For the reasons stated, the Brazilian funds described above had no fair market value in 1947. In her federal income tax return for 1947, the taxpayer erroneously reported, as proceeds from the sale of a capital asset, the amount of $129,474.10, being the blocked Brazilian funds of Cr. $2,425.050,000 received on the sale of her stock, as aforesaid, converted into U.S. funds at the official exchange rate of 18.73 cruzeiros to the dollar; that her basis for the aforesaid shares amounted to only $13,809.02, instead of $165,709.20 as set forth above; and that she had received dividends in the amount of $26,050.53, being the dividends in the amount of Cr. $487.920,000 received in blocked Brazilian 558 Findings of Fact funds, as aforesaid, converted at the official rate. By reason of the erroneous inclusion of the foregoing amounts of Brazilian funds, converted at the official rate, in her gross income, and the erroneous statement of her basis for the shares sold as aforesaid the taxpayer overpaid income tax for 1947 in the amount of $69,129.64, refund of which, with interest, is hereby requested. 32. (a) Pursuant to the claim mentioned in finding 30, the Internal Revenue Service notified the plaintiff Achille F. Ford that it proposed to determine that an overassessment amounting to $37,883.71 had been made in connection with his income tax liability for 1947. The following explanation of such proposed action was given: (a) Dividends received in various Brazilian corporations in the aggregate amount of Cr. $487,920.000 [sic] Brazilian currency, which was blocked by the Brazilian Government, and which the taxpayer elected to report as "Deferable Income" in accordance with Mim. 6475 (as amended by Mim. 6494, March 27, 1950), to be eliminated from income in 1947 in the amount of $26,011.73. (b) Capital gain from sale of 1,530 shares of stock of *** [the Santos Company] was recomputed in accordance with Mim. 6475 (as amended by Mim. 6494, March 27, 1950), as follows: Amount received in U.S. currency 1⁄2 of $258,948.20= $129,474. 10 Cost or basis per RAR--- 8, 874. 72 3,829.90 125, 644. 20 11, 857.50 (b) The proposed overassessment mentioned in paragraph (a) of this finding was accepted by the plaintiff Achille F. Ford on December 27, 1950. (c) The overassessment mentioned in paragraph (a) of this finding was subsequently increased by the Internal Revenue Service to $39,633.71, and this amount was refunded to the plaintiff Achille F. Ford. |